Why and How Artificial Intelligence is shaping the Future of Retail

The new power of today’s businesses is data. Learn more about where the key potentials for retail are.

For a long time, the dynamic of economic growth was mainly based on technical, physical or software innovations. A functional, durable and well-conceived “hardware” and “software” were at the center of customers’ and companies’ attention.

But this is no longer enough: In our increasingly connected and “optimized” world, only manufacturing, software or services alone are no longer the only success factors and it takes more to generate a true competitive advantage.

It is Artificial Intelligence (AI) which makes the difference. What is AI? In a nutshell, it stands for an area of computer science that emphasizes the creation of intelligent machines that work and react like humans.

Note: This article is part of our #DigitalRetail series – click here for an overview

However, what will be critical for future economic growth is the capability of a company to leverage the enormous potential of data that lies within its core business and to derive and create new AI-driven services from there. The fields where AI and smart data can be used are diverse and fascinating at the same time – but in commerce and especially in retail, emerging technologies are rewriting the business at a rapid pace and are shaping the future.

In e-commerce, the extensive use of smart data is already the daily norm. But let’s take a closer look at what data-driven AI can do specifically for the “classical” POS-retail.

Using data is the key to success and it drives disruptive changes

Data is the true new game changer

No matter which industry you are examining, data is the key to success and drives disruptive changes.

Take the example of car manufacturers: In former times, car manufacturers were judged according to the high quality of their automobiles. High quality in hardware was the key differentiator between premium products and entry-level products.

This trend moved to software as the key differentiator: Five years ago, entertainment, navigation and innovative control concepts were the features that distinguished premium from mainstream.

Today, these features are standard and car-manufacturers are panting for using artificial intelligence to make driving decisions based on tons of data that is fed into the car from all possible sensors. It will not be the electric drive – it will be autonomous driving that will significantly change the way we think of mobility.

“In our company history of over 17 years, we have started to use AI at a very early stage, e.g. for fraud prevention”

– Markus Braun, CEO of Wirecard AG, at the Pioneers Conference on June 1st, 2017

The same applies to the biggest technology players: Formerly, Apple built on its elaborate and well-designed hardware, in combination with functional software. Later, software and apps played an increasing role – it had to enable as well as to look good. Whereas today, so-called “FAMGA” (Facebook, Apple, Microsoft, Google, Amazon) unanimously consider artificial intelligence to be the most important area for significant investments.

It’s time for data-driven solutions which are capable of handling today’s data

To achieve a connected and yet seamless customer experience, the following questions have become focus over time:

The good news is that there is a way to find answers to all of these questions: Smart Data. As traditional methods of analysis have become increasingly incapable of handling this data volume efficiently, special data-driven solutions are needed. And the big challenge is that these solutions must be not only responsive and dynamic, but also user-friendly and easy to maintain.

How to create value with data in retail?

In terms of hardware and software, this means using a dynamic data platform for easy generation and flexible use of POS-relevant real-time data that creates added value. It can be used to link customers to their transactions and forward transaction data to the loyalty system for earning and redeeming loyalty points.

“AI always has to deliver a clear value – and in payment, we saw that it can deliver a considerably higher conversion rate”

– Markus Braun, CEO of Wirecard AG, at the Pioneers Conference on June 1st, 2017

But that is not all: Diving into the pool of data is all about gaining insight and creating value. All transaction data can be enriched with consumer profile information and be used to analyze customer behavior to ensure a seamless, consistently pleasant shopping experience across all channels.

These are the main data sources:

Merchant locations, product items, localization

You want to know if your consumers buy their tomatoes at a large grocery store, a vegetable retailer next door or whether they prefer to order pasta al pomodoro from the delivery service – and where do they come from?

Using data can, for instance, easily cluster consumers according to specific categories and monitor how consumers purchase and where they purchase afterwards. Therefore, it’s possible to match product sales and campaigns with the consumers’ purchasing journey.

In order to locate customers the merchant needs to know where they come from, how many are located in nearby regions and on which categories they spend most of their money.

Risk Management

Besides predictive analytics, using smart data is a game changer especially for risk management solutions. We aren’t revealing a secret when we say that effective risk management is very important. But: As technology rapidly evolves, fraud and potential risks during money transfer are becoming more prevalent and damaging. The scale of attacks is far bigger than it was years ago and companies can go from being apparently safe to suffering devastating losses almost overnight.

Bottom line is that compared to traditional systems, companies could leverage a higher margin by using state-of-the-art AI-driven risk analysis. Systems that companies traditionally rely on to protect themselves are no longer an option as they must be able to react in real time to prevent modern fraud attacks.

“AI is not only very helpful to protect merchants and consumers – but it also helps merchants to understand their customers’ wishes and needs much better than ever before”

– Markus Braun, CEO of Wirecard AG, at the Pioneers Conference on June 1st, 2017

Conclusion: 8 reasons to use the full potential of data

After taking a closer look at the power of data and analyzing consumer behavior, even more benefits can be achieved by using scoring algorithm. It enables to take the data and use it to the maximum for an overall business optimization. But let’s break it down to the main reasons:

conversion optimization

effective customer acquisition

highly targeted promotional offers

stock planning

recognizing cross-selling and up-selling potentials

effective basket analysis

recognizing spillover effects

effective exploitation of seasonal / periodic effects

So retailers, it is time to pick up pace!

In order to successfully stand out from the competitive crowd in the long run, you should make use of the full potential of Smart Data and profit from the favorable conditions.

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Markus is Executive Vice President Group Strategy at Wirecard. After being in charge for Wirecard’s mobile and value added services, he now takes responsibility for the company’s global strategy and blogs about the future of payment.